Treating periodic compensation payments as a direct deduction or income 108-03190040

This document outlines how to determine whether payments of periodic compensation are to be treated as direct deduction or ordinary income for a compensation recipient.

The treatment of periodic compensation payments depends on whether the compensation recipient was qualified for and receiving a Compensation Affected Payment (CAP) at the time of the compensable event.

The date of the compensable event may be different from the date of incident.

Date of incident

The date of incident is the later of the date the:

injury occurred if the condition, injury or disease was caused by an accident
condition, injury or disease was diagnosed in any other case

Date of the compensable event

The date of the compensable event is the later of the date:

of incident
of diagnosis
loss of earnings or wages commenced from

Investigate each case to ensure the appropriate date is used.

If the Earnings (EANS) screen shows that the customer continued to work or receive wages after the injury or accident occurred, further investigation may be required.

If the date of the compensable event is determined to be when the loss of earnings started, this should be recorded in the Compensation Management Summary (CMS).

Qualified and in receipt of a CAP

The compensation provisions make a distinction between ‘receiving’ and ‘qualified for’ when determining the correct way to assess compensation.

Customers receiving a NIL rate of payment at the time of the incident are considered to be qualified for a CAP but not in receipt of it. As a result their compensation should be assessed using the direct deduction test.

Backdated CAP claims

If a customer’s claim is backdated to the date of injury under section 23(2) of the Act the person is understood to be in receipt of that payment from the date of grant.

Direct deduction

Periodic compensation is generally a dollar for dollar reduction against the daily rate of a Compensation Affected Payment (CAP) payable. The reduction is applied to the compensation recipient’s rate after the ordinary income and asset test has been applied.

Treat periodic compensation as a direct deduction for the recipient if on the date of the compensable event:

the compensation recipient is not qualified for and receiving a compensation affected payment (CAP)
the compensation recipients payment was suspended or paid at a nil rate Direct Deduction means that the periodic compensation is assessed as a dollar for dollar rate reduction against the customer’s payment.

Payments assessed as direct deduction will not affect the compensation recipient’s partner's eligibility until the compensation recipient’s entitlement is reduced to nil. Any remaining compensation will affect the partner of the compensation recipient’s own ordinary income.

Ordinary income

If the compensation recipient was qualified for and receiving a CAP on the date of the compensable event, the periodic compensation is treated as ordinary income.

Where it is not possible to determine the compensation recipient’s qualification for a CAP for reasons other than the effect of the compensation provisions, any periodic compensation paid in respect of the compensable event should be assessed under the ordinary income test.

Compensation assessed as Ordinary income will affect entitlement under the normal ordinary income provisions appropriate for the customers/partners payment type.

Compensation assessed as Ordinary income will affect a partner's entitlement under the normal ordinary income provisions.

Coding or changing system defaults

Only staff in the Compensation Recovery Team (CRT) can set up arrears and new ongoing periodic payment details. Once completed, all other staff can update periodic compensation payments on an existing record.

The Resources page has examples of the date of the compensable event.

Operational Information